Finding the lowest-cost home loan can be confusing. But, it has gotten easier thanks to the standardized good faith estimate, or GFE, that the U.S. Department of Housing and Urban Development implemented in January. The new GFE clearly specifies your interest rate, the number of points you’re paying for such rate, and lays out the terms of the loan.
There are a few things to understand first. Rates change on a daily basis and sometimes throughout any given day.. Shop for lenders on the same day, or if possible, even the same time. Tell the lender that you need their best quote as of 12pm Eastern/Standard time for a specific date.
Make sure to compare loans that are the same type, such as a 30-year fixed loan, or a 15-year fixed loan? Do not compare 30-years with 15-years. They are too different and will result inaccurate representations of you final loan.
Be sure to look at not only the interest rate but at the fees as well. Just because a broker or bank offers a lower interest rate than others doesn’t mean it’s the best deal. They could be charging more fees. The new GFE has one line for all settlement charges, rather than using 50 lines that could be duplicate charges called by different names.
Some of these fees come in the form of ‘points’. Points are an up-front fee paid to the lender at closing. Each full point equals one percent of the loan amount. Points are charged, or paid, to lower or increase the rate on the loan. Most lenders will allow you to choose amongst a variety of rate and point combinations for the same loan product. So, make sure you compare the associated points as well.
Other fees to consider are, closing costs, which typically consist of loan related fees, title and escrow charges, government recording fees, and transfer charges, which can all add thousands of dollars to the cost of your loan.
Comparing Different Lenders
When comparing loans of different lenders make sure to investigate and compare all loan features, such as, maximum LTV, credit scores requirements, mortgage insurance payments (if any), credit and cash reserve requirements, qualifying ratios, property types, occupancy type, etc. It is important to note that there are different tiers in pricing for individual qualifications for the above mentioned qualifying factors. A ‘standard rate’ isn’t realistic.
For each loan you are comparing find out the lock-in-period, during which the interest rate and points quoted to you will be guaranteed. Lock-in’s of 30, 45 and 60 days are common. Some lenders may offer a lock-in for only a short period of time (15 days, for example). Note that the longer the lock-in period, the higher the price of loan. The lock-in period should be long enough to allow for settlement before the lock expires.
Then there are other fees associated with a loan. These fees can include processing and underwriting fee, mortgage insurance premium, appraisal fee, the cost of a credit report, tax service fee, application, commitment, wire transfer fee, etc. Points can include discount and origination points and have to be converted into dollar amounts. Some lenders have different names for them. One lender might offer to waive one fee and then add another one.
So, when comparing loans of different lenders you should look at the total sum of ALL the loan related fees, then evaluate which lender presents the best deal.